Rogue Traders, Knave Traders, and the Subprime Blame Game

You know, life without rogue traders just wouldn’t be the same. They give the usually random story of the market a plot, with their revealed presence reinforcing the idea that there are people out there behind the market’s gymnastics, even if it’s a 30-something former risk manager turned trader in a French bank.

jack-spades Mind you, today’s revelations about a $7-billion SocGen writedown stemming from actions of trader Jerome Kerviel looks like it’s turning into more of a mini-rogue — maybe we should call them "knave traders" instead — as compared to the epochal, company-shattering shenanigans of a Nick Leeson or his ilk. Where’s the rogue-ery if you don’t bankrupt your own firm? What’s with SocGen? Doesn’t it trust its traders? Where’s the fun in that?

Some are already arguing that the revelations (and quiet unwinding of Mssr Kerviel’s positions on Monday) explain why European markets tumbled (and why the Fed therefore f***-ed up with its emergency rate cut). Maybe, but on the other hand, the fall did start in Asia, not in Europe, and by the time it got to Europe — where our knave’s managers were busily emptying the shelves of his subprime dry goods — the selling had slowed somewhat. Granted, European traders in and around SocGen could have been working futures and the like in an early attempt to get some of the crap hedged out of sight before European markets opened, but it’s not clear to me that we can blame Monday’s Asian tumble entirely on pre-emptive cleaning up after the run-amok Mr. Kerviel.

More broadly, I’m delighted to see the return of a rogue trader, even on this small scale. Capital markets work best when greedy and well-capitalized traders get to take absurd, inappropriate and unwarranted risks, so I’ll take this as meaning we’re on the path  to relatively market normalcy, even if that future is one with far fewer banks playing hosts to knaves like Mr Kerviel and his like.


  1. Judging by comments elsewhere in the intertubes, I’m not the only one wondering if someone really managed to make off with $7bn post-Barings. Undoubtedly someone was being naughty, but couldn’t it be like one of those under-the-table deals where, after being caught by the police, they tell you they’ll sort you a shorter sentence if you confess to a score or so unsolved crimes and take them off their books. In this case, for unsolved crimes, read ‘silly investments we didn’t understand’.
    Of course none of that sort of thing goes on nowadays. I’m probably just overestimating SG’s eye-on-the-ballness. Probably.